I've had a 160GB Apple TV since it was released over 3 years ago and have been anxiously following rumors of an upgrade from Apple for quite a while now. The most recent rumor indicates that Apple's strategy for their "hobby" is to get rid of the local storage altogether and replace the Mac OS with the iOS (formerly iPhone OS). According to the rumor, the device would pull media off of iTunes online and as well as a local Time Capsule. Best of all, the device would only cost $99.
That sounds fantastic. Sign me up Apple! I would get a device for every room in the house if they were that cheap. Sadly, I watched the Steve Jobs WWDC presentation with the hope that an Apple TV announcement would be made, but I was disaappointed by the results (the iPhone 4 is great BTW and I can't wait to place an order for one).
Hopefully, such a product would be announced at Apple's next even, which will probably take place in September. Apple is expected to release n updated iPod Touch device at that time and it would make sense to announce the Apple TV since it is a media device as well. Let's hope!